The rise of the global middle class is one of the great economic triumphs of our time, or so we’re told repeatedly.
“For the first time, the number of people in the middle class surpasses those living in poverty,” says World Bank President Jim Yong Kim. “There is a class of nations in the middle that barely existed 50 years ago, and it includes more than half of the world's population,” promises Bill Gates, who also predicts there will be almost no poor countries left in the world by 2035.
The world’s poor are undoubtedly getting richer in aggregate, and the percentage of people in the world living in extreme poverty is lower than ever before. But before getting too excited about the coming of the middle-class world, it might be useful to think a little bit about what we mean by that term.
Middle class is as much a matter of perception as statistics—the number of Americans describing themselves as middle class has remained essentially unchanged in recent years even as their incomes and spending power have eroded. When the same term is used to describe an American household bringing in up to $100,000 per year (according to a recent poll; $250,000 if you’re Mitt Romney) and Laotians living on $2 per day (according to the Asian Development Bank), it may not be a very useful term.
Whenever you see a headline about the developing world middle class, take a look at the cutoff number being used. The African Development Bank claims that “the middle class had risen to 34 percent of Africa’s population, or nearly 350 million people”—a commonly repeated statistic in the media—but it also defines middle class as anyone living on more than $2 per day.
Using the same cutoff, the Asian Development Bank claims that the percentage of Asians in the middle class jumped from 31 percent to 82 percent over the past two decades. A recent report by the International Labor Organization boasted that 40 percent of workers in the developing world are now middle class, meaning in this case that they live on $4 per day. This prompted the Economist to proclaim that “workers in poor countries have never had it so good,” which, again, is technically true though a bit misleading to readers used to a developed-world definition of middle class.
Not surprisingly, you can get a very different picture of the world depending on which definition of middle class you use. A 2009 analysis by economist Martin Ravallion, then at the World Bank, now at Georgetown, found that between 1990 and 2002, 1.2 billion people in the developing world became middle class as defined by the $2-a-day threshold, while only 80 million, or 7 percent, became “Western middle class,” meaning they would not be considered poor by U.S. standards. (The current U.S. poverty line is $11,490 per year for a single person.)
It’s not surprising that countries—and the multilateral bodies that represent them or take credit for helping them—are eager to use the most generous numbers. “Developing countries that are growing fast take pride in that they’re getting richer and contributing more to growth at the global level,” Nancy Birdsall, president of the Center for Global Development, told Slate. “Part of the discussion for them is, ‘We also have now a middle class. We’re not just poor countries.’ ”
But the world, as a whole, is still a poor country. The standard way to identify the middle class is to find the number of people whose income is between 25 percent above and 25 percent below the median income. For the United States that gives you about 27 percent of the population. The rest of the population is either much richer or much poorer.
Looking at the world as one country, you find a statistical middle class of about 13 to 15 percent of the global population, a group living on between $4 and $6.50 per day.
“The world, if it were a single entity, would have a middle class about the size of Guatemala’s or El Salvador’s, and their average income would be one-half of the U.S. poverty line,” says Branko Milanovic, an expert on global inequality and senior scholar at the CUNY Graduate Center. “That implies that the world is not really a middle-class society.”
Of course, you can stretch a dollar a lot further in some countries than others: Someone making $5 a day in Namibia is in relatively better economic shape than someone making the same amount in Belgium. Differences in purchasing power between countries and currencies make it difficult to come up with a common definition for what makes someone middle class.
Some have even argued we should ignore income entirely and look at purchases instead. Shimelse Ali and Uri Dadush of the Carnegie Endowment for International Peace say the ability to buy a car is the best indication of middle class-ness. (Using this method yields a much larger middle class than Milanovic’s preferred method—almost twice as large in the case of India.) Mexican pundits Luis de la Calle and Luis Rubio base their argument that Mexico has become a middle class society on people’s access to technology such as cellphones.
Birdsall argues that a sense of economic security is what makes someone middle class: You’ve crossed the line when you no longer have to worry about falling back into poverty. She notes in a recent blog post that Mohamed Bouazizi, the Tunisian street vendor whose self-immolation set off the Arab Spring, lived on about $5 a day at the time, making him middle class according to a number of traditional definitions. While he was not living in what’s generally considered abject poverty, his situation was precarious enough that he was facing economic oblivion after the police confiscated his cart.
This sense of security may be possible to quantify. Having looked at household survey data for Latin America, Birdsall argues that a rough but more reasonable standard for that region would be $10 a day.
“When you get to $2, you are still really poor,” she says. “You are not secure at $2 even in really poor countries. At least in Latin America, it’s only when you get per person something like $10 that you’re reasonably secure from being thrown back into poverty. Until you get to $10, you’re kind of bouncing around.”
Her research found that at $10, people had only about a 10 percent chance of falling below the poverty line within three to five years. At $5 a day, there’s a 40 percent chance.
Changing our standards to something close to this line would force us to adjust our expectations for global growth. “In the developing world, for the next 20 years, most people will still be below $10,” Birdsall says. “They won’t be middle class except in the mythology that $2 is middle class.” The Times of India has pointed out that going by Birdsall’s definition, India—one of the most-touted economic growth stories of the past 20 years—has literally no middle class: “everyone at over $10 a day is in the top 5 percent of the country.”
But this view of the world isn’t really as pessimistic as it sounds. “It’s real that people around the median of global income have gained during the era of globalization, almost doubled their income,” says Milanovic. “The problem is that when people use the term middle class, they imply a middle class at the U.S. level.”
The notion of the United States as a middle-class country, with the health of both its democracy and economy rooted in the strength of that class, has been fundamental to America’s self-image since at least the time of de Tocqueville, and the much mythologized middle class features in the political rhetoric of both parties. The fact that that middle class is feeling particularly insecure at the moment is one reason why certain debonair French economists are burning up the best-seller lists.
Talking about a “global middle class” can imply an emerging population of people in the developing world who will live and spend like Americans or Europeans. Despite the incredible reductions in absolute poverty we’ve seen in recent years and the economic stumbles of America and Europe, we’re still a long way from that world.